Planning Adjusting Entries on a Work Sheet Ch 7 Section 2 Planning Adjusting Entries on a Work Sheet

Planning Adjustments On A Work Sheet Sometimes a business will pay cash for an expense in one fiscal period, but the expense is not used until a later period. The expense should be reported in the same fiscal period that it is used to produce revenue. The accounting concept, Matching Expenses with Revenue, is applied when revenue from business activities and expenses associated with earning that revenue is recorded in the same accounting period.

Matching Revenue With Expenses Encore music buys supplies in quantity in August, but some of the supplies are not used until September. Only the value of the supplies used in August should be reported as an expense in August. With this method, August revenue and the supplies expense associated with earning the revenue are recorded in the same accounting period.

From Asset to Expense Supplies on hand with a business is an asset until it is used. Then it becomes an expense Insurance purchased for a year is Prepaid Insurance until all or part of it is used. Then it becomes an expense.

Adjustments Changes recorded on a worksheet to update general ledger accounts at the end of a fiscal period are called adjustments. The portions of the assets consumed in order to earn revenue become expenses of the business. (Supplies, insurance, etc.) After the adjustments are made, the expenses incurred to earn revenue are reported in the same fiscal period. Changes are NOT made in the general ledger until adjustments are journalized and posted.

Adjustment - Supplies On August 31, the business counted the supplies on hand and found that the value of the supplies still unused on that date was $2,187 Insert math problem page 161

SUPPLIES ADJUSTMENT ON A WORK SHEET 2 3 1 At the end of the fiscal period, you take an inventory of supplies and find that there are $2187.00 of supplies on hand. Make the adjustment to the Supplies account. 1. Write the debit amount. 2. Write the credit amount. 3. Label the two parts of this adjustment with a small letter a in parentheses, (a). Lesson 7-2, page 161

PREPAID INSURANCE ADJUSTMENT ON A WORK SHEET 2 3 1 At the end of the fiscal period, you review your insurance statements and find that you only have $1100.00 of coverage remaining. Make the adjustment to the Prepaid Insurance account. 1. Write the debit amount. 2. Write the credit amount. 3. Label the two parts of this adjustment with a small letter b in parentheses, (b). Lesson 7-2, page 162

PROVING THE ADJUSTMENTS COLUMNS OF A WORK SHEET 1. Rule a single line. 2. Add both the Adjustments Debit and Credit columns. 3. Rule double lines. 1 2 3 Lesson 7-2, page 163

Work Together 7-2 Txtbk Page 164 Wkbk pg 131

7-2 WT

Classwork 7-2 OYO textbook page 164 using workbook page #132. Application Problem 7-2 textbook page 175 using workbook page #149. Go to my website www.sssuc.weebly.com and open up the Word file named “ch7 7-2 adjustments” and follow the directions.